Amidst controversy, Didi surprisingly turned a profit in the second quarter of this year.

Didi recently released its second-quarter financial report for 2024:

In the second quarter of this year, Didi generated revenue of 50.864 billion yuan and a net profit of 1.697 billion yuan;

Net profit attributable to ordinary shareholders was 1.4 billion yuan;

Adjusted EBITA (Non-GAAP) profit was 1.3 billion yuan.

In the same period last year, Didi's total revenue was 48.8 billion yuan, with an adjusted EBITA loss of 10 million yuan.

Specifically:

In the second quarter, Didi's China mobility business achieved an adjusted EBITA profit of 2.367 billion yuan, a year-on-year increase of 64.6%;

The international business recorded an adjusted EBITA loss of 536 million yuan, expanding by 120.6% year-on-year;

Other businesses reported an adjusted EBITA loss of 559 million yuan, a decrease of 53.6% year-on-year.

In other words, relying on the high profitability of China's ride-hailing market, Didi has not only offset the continuing losses from its overseas and other businesses but has also turned the company's overall performance around.

So why is Didi's China ride-hailing market so profitable?

The Gulf Stream Economic Review believes that continuously increasing commissions from drivers is one of Didi's effective means of generating profits. Behind this lies the ever-worsening situation faced by the vast group of drivers on the Didi platform.

01

Breaking down Didi's business data: Didi collected commissions of 14.463 billion yuan in this quarter, representing a commission rate of 19.67%, a 2.2 percentage point increase year-on-year.

More crucially, Didi's commission rate has risen from 11% in 2019 to 19.67% in the second quarter of 2024, nearly doubling.

Assuming 20 rides per day at an average fare of 30 yuan per ride, with a 10% commission, drivers would earn 540 yuan; with a 20% commission, they would earn 480 yuan. The 60 yuan difference is enough to cover a full day's charging costs.

Don't underestimate this small amount. It has a butterfly effect on today's driver community.

First, a large number of unemployed individuals are becoming drivers. In July, the youth unemployment rate (excluding students aged 16-24) rose to a high of 17.1%, an increase of nearly 4 percentage points from the previous month. Since last year, many places have continuously issued risk warnings for the online ride-hailing industry, stating that capacity is approaching saturation or far exceeds actual demand, and publicly reminding people to proceed with caution.

Second, the growth rate of ride-hailing users is rapidly slowing. Amidst consumer downgrading, consumers who previously preferred premium or express rides are now opting for buses and subways instead. Since 2023, Didi's domestic ride orders have shown a continuous slowdown in quarter-on-quarter growth, with only a 1.7% increase in the second quarter.

In such a difficult environment, last year at this time, the Ministry of Transport was promoting the "Sunshine Action" to encourage online ride-hailing platforms to reduce commissions from drivers. However, Didi continued to ramp up its commission rates for drivers.

In addition to increasing commissions, Didi also appears to have abandoned its profit-making approach through technology monetization. In the second quarter of this year, Didi's R&D expense ratio was only 3.5%, which is only at the level of 2019. Moreover, this figure has been on a downward trend since 2022.

As a technology company, Didi's 3.5% R&D expense ratio is difficult to justify. According to Shijie's statistics, the overall R&D expense ratio of companies listed on the STAR Market exceeded 9% in 2022; the R&D expense ratio of around 4,000 listed companies on Nasdaq was also around 7.8%.

02

But beyond Didi's high commissions, the current fate and future of Chinese drivers are also quite challenging.

For example, while new energy vehicles save fuel, they do not necessarily save money, leading to increased costs. The common issues faced by new energy ride-hailing drivers currently are:

Insufficient charging infrastructure. According to the China Passenger Car Association, while the ratio of electric vehicle charging piles to new energy vehicles in China's incremental market has reached 1:1 in 2023, charging piles during peak hours still cannot meet the huge demand, thereby occupying the driving time of new energy ride-hailing drivers.

Secondly, battery life decreases rapidly in winter. Due to low temperatures in northern China, the battery life of pure electric vehicles decreases significantly, with some models losing 100 kilometers of range after driving only 50 kilometers.

Thirdly, charging is slow. Charging speed is influenced by various factors such as external temperature, charging piles, and batteries. Additionally, due to faulty charging guns, the charging time for new energy vehicles can be extended to some extent.

Charging is expensive. The rise in charging fees is no longer news, turning electric vehicles into "electric money pits."

Decreased income and increased costs make it more difficult to earn money driving new energy ride-hailing vehicles.

More cruelly, autonomous driving technology, which is bound to replace drivers in the future, is developing rapidly. Luobo Kuaipao has surpassed 6 million cumulative orders as of April this year and is expected to achieve breakeven in Wuhan by the end of this year and profitability in 2025.

In other words, Robotaxi represented by Luobo Kuaipao is about to complete the business loop, dropping a bombshell into the dormant market.

The second bomb comes from Tesla. It is expected that Tesla's Robotaxi will be unveiled in October. As an autonomous vehicle manufacturer with over 1 billion miles of FSD driving data, Tesla cannot be underestimated.

The third bomb is from Didi. In April this year, Didi Autonomous Driving and GAC Aion's joint venture, Guangzhou Andi Technology Co., Ltd., was approved for a business license. This is the first joint venture established in China by an L4 autonomous driving company and an automaker to produce Robotaxi vehicles for mass production. It is reported that the company will launch its first commercial L4 vehicle in 2025.

On September 9, 2012, Didi's predecessor, Didi Dache, was officially launched, with only 200 drivers. In 12 years, Didi has grown its driver base in China to nearly 20 million through aggressive ground promotions and subsidies.

However, these 20 million drivers now represent a critical juncture for Didi.

References:

Dolphin Investment Research: Squeezing profits, is Didi entering its twilight years?

Caixin Weekly: Didi's Enemies

Caixin: Didi reveals cause of app outage: underlying system software malfunction

Caixin: Are new energy ride-hailing vehicles more profitable to drive?

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